The price of heavy oil from Canada's oilsands has quietly rebounded by 77% in the past six weeks, far better than the comeback in other types of crude.
Most of the oil that Canada produces is called Western Canada Select, the benchmark blend of thicker, tarry bitumen-based crude oil that comes mostly from Alberta's oilsands. The price of WCS has stormed back from $29.71 U.S. a barrel on March 17, to $52.63 on May 6. That's an increase of more than 77% in a little over 30 trading days.
What's more, it is almost twice as much as the surge seen in the North American benchmark WTI — West Texas Intermediate — over the same time period. And it's almost three times as much as the price surge seen in Brent, which is the type of oil that's the benchmark just about everywhere else in the world.
Why? The answer is a complex mix of factors including more pipeline capacity, increased rail shipments and some seasonality.
But the main one is that certain investments made by the oil industry several years ago when Canadian oil was undervalued are starting to pay dividends.
At certain points following the end of the recession in 2009, heavy oil from Canada traded at a discount of as much as $40 U.S. per barrel compared to WTI. That's because, despite being a major source of crude, Canada has very little refining capacity. So the vast majority of Canadian oil is exported to U.S. refineries for processing.
For many years, Canadian heavy oil had to accept a lower price because it was more expensive for those refineries to process.
But over the years refineries spent billions to make themselves better able to process heavier oil, and now the price gap has narrowed from $40 U.S. a few years ago to under $10 today with WCS changing hands at just over $51 U.S. a barrel on Monday, not much less than the $59 U.S. spot price for WTI.
Another factor in the rise of WCS is the many new pipelines, which have made it easier to get Canadian oil to U.S. refineries quickly and efficiently.
Thanks to these new pipelines, past bottlenecks have been washed away, and the situation is closer to a free market.
In addition to new pipelines, many older ones have been upgraded in order to be able to pump oil in multiple directions. That makes it easier to keep the supply and demand of crude in check.
